Rupee Plunges, Premiums Follow Suit

FOREX REPORT

The spot rupee witnessed a 11-paise fall yesterday, following high corporate demand for dollar and outflows from foreign institutional investors (FII).

The currency nose-dived to reach a new all-time low of 44.15, after opening higher than the previous day's close. The forward premiums tracked the spot rupee movements, falling by 10-13 paise by the day's close. The demand was being held artificially in the last few days, after the rupee's 35-paise dip on May 10. The decline of rupee caused some panic in the market.

"There was intervention from the Reserve Bank of India (RBI) and other nationalised banks, but it was not enough and the demand continued to tax the supplies in the market," said broker with a private sector bank. "Throughout the day, the apex bank tried to stem it but was unable to do so. Most corporates were comfortable at the 44.10 levels and the minute it crossed that level every one started cashing in," he added. The reason that the RBI has not done anything is perhaps because it is comfortable at these levels and wants the rupee to sustain it. As per a RBI circular, the reference rate for the dollar is Rs 44.08 as of May 24 against Rs 43.98 on May 23.

The forward premiums moved erratically, aggregating 10-13 paise. The premiums went up by a quarter of one per cent. "The sentiment was not good and the perception is that in a few days most rates are tightening, liquidity, interest rates as well as the rupee-dollar exchange rates so the dealers are sitting tight,' said a dealer with a foreign bank.

Today the rupee is expected to remain in the 44.10-44.25 range. "If the rupee crosses the 44.20-mark, the RBI will most definitely come into the market and try to curb the fall of the rupee," said a dealer with a private sector bank.